Shell and its affiliates plan to build a small-scale natural gas liquefaction plant in Geismar and another in Canada that will provide fuel for commercial transportation customers.
The Geismar facility will produce 250,000 tons of liquefied natural gas each year, or around 400,000 gallons a day, according to Shell.
Shell’s is the second small-scale LNG facility in the area announced in the past week. Houston-based Waller Marine announced plans Thursday for a similar-sized facility at the Port of Greater Baton Rouge that will cost around $200 million.
Shell did not release the estimated cost for its facility.
Shell will build the Louisiana unit at its Geismar Chemical facility, the company said. The unit will supply LNG along the Mississippi River and the Gulf Intracoastal Waterway, to onshore exploration areas in Texas and Louisiana, and offshore in the Gulf of Mexico.
Shell said it has an agreement with Edison Chouest Offshore companies to supply LNG fuel to vessels operating in the Gulf.
Under the agreement, Edison Chouest will also provide what is expected to be the first LNG barging and refueling operation in North America at the firm’s Port Fourchon facilities, according to Shell. LNG transport barges will move the fuel from Geismar to Port Fourchon, where the barges will refuel customer vessels.
Shell said in order to serve oil and gas and other industrial customers in Texas and Louisiana, the company will get LNG terminaling, storage, transportation and distribution from Martin Resource Management Corp. and its publicly traded affiliate, Martin Midstream Partners LP.
Shell said it also moving to LNG as a fuel in its own operations or to support its operations. The company has chartered three offshore support vessels from New Orleans-based Harvey Gulf International Marine that can use LNG or diesel. These vessels will be used to support Shell’s operations in the Gulf of Mexico.
In addition, Shell has also begun to transition many of its onshore drilling rigs and hydraulic fracturing spreads to LNG. These conversions can reduce fuel costs and local emissions, according to the company.
The movement to LNG as a transportation fuel is being driven by three trends: stricter federal air-emission regulations, cost and supply, said David E. Dismukes, associate director of the LSU Center for Energy Studies.
“As these EPA (Environmental Protection Agency)-driven rules continue to become more stringent, transportation is one of several sectors that’s going to have to adjust,” Dismukes said.
This can be achieved in part by moving to cleaner-burning diesel and reformulated gasoline, Dismukes said. But that option is becoming increasingly expensive.
Meanwhile, LNG is virtually free of sufur and particulates, which help transportation firms meet emission standards, according to Shell. Natural gas is made into a liquid by cooling it to minus 262 degrees, which shrinks the volume and makes it easier to store.
In the United States, the average cost of a gallon of compressed natural gas was $2.11 on Monday, according to CNGprices.com. At Baton Rouge-area fueling stations, compressed natural gas ranged from $1.69 to $2.
The average price for a gallon of regular gasoline was $3.76 last week, according to the U.S. Department of Energy.
The difference in price helps make natural gas a great choice, Dismukes said. Even if natural gas prices rise from their current, relatively low levels, the fuel will still have a convincing price advantage over diesel.
Finally, Louisiana has an abundant and easily deliverable supply of natural gas, which makes this part of the world a good place for LNG-powered marine vessels, he said.
In an email, Shell spokeswoman Kayla Macke said both the Geismar unit and the one in Ontario, Canada, are expected to begin producing LNG in about three years.
However, Tony Vollmers, lead mechanical engineer for ship designer STX Canada, which makes LNG-powered vessels, said it’s possible Shell will be able to sell LNG domestically, but the size of the company’s units look more like export facilities than anything else.
“What’s the incentive for these guys to bring it offshore? There’s a lot more market if they go to Asia,” Vollmers said. “The gas price locally is not nearly what it would be in Asia so there’s no real motivation to sell it to the marine industry.”
Meanwhile, Macke said the Geismar unit is not related to a proposed $10 billion plant in Louisiana that would make diesel out of natural gas.
It’s been 11 months since Shell revealed the company was considering building the gigantic gas-to-liquids plant. At the time, the company said it could take two years to determine whether the plant is economically feasible.
Macke said Shell is still evaluating the possibility of a Gulf Coast gas-to-liquids facility.